The summer economic statement, to be announced by the Government today, will herald significant increases in spending in October’s budget.
These spending increases will be composed of the budget day announcements of next year’s spending plans – the scope of which will be outlined today – and the impact of increases to this year’s spending allocations, announced in recent weeks.
Today's statement, to be delivered this afternoon by Minister for Public Expenditure Paschal Donohue and Minister for Finance Michael Noonan, will identify scope for spending increases and tax cuts in the budget of over €900 million, it is expected.
Fiscal space
The €900 million of “fiscal space” is some €400 million greater than was generally accepted during the election campaign. However, sources familiar with the process say this will be in addition to recent additional expenditures announced for this year, principally in the
Department of Health
.
The Government recently announced an extra €500 million for the Department of Health this year, and an extra €40 million for the Department of Justice. This will expand the existing allocation of resources for the two departments, and any spending increases announced in the budget will further supplement their budgets.
The Government anticipates it can avoid falling foul of EU rules which limit the level of spending increases which will be announced at budget time.
It is understood the Department of Finance has been in contact with the European Commission about how the EU fiscal rules can be observed, while still facilitating the Government's desire to expand spending in particular areas – especially in health – with the proceeds of strong economic growth. The commission must approve the budget measures, but only does so next spring, after they have been announced. However, sources say the commission is likely to tacitly approve the extra spending. "We wouldn't ask if the answer was going to be no," one said.
A spokesman for the commission said Brussels had not received any "specific requests" from the Government. He said EU fiscal rules "ultimately determine to what extent government spending can be increased or taxes cut".
However, the spokesman also said the commission’s interpretation of the stability pact rules “takes into account the political and legal discretion which the rules foresee, including making sure that the specificities of every situation are taken into account, while ensuring equal treatment for all member states.”
Stability programme
Last year, the Government published the spring economic statement alongside updated economic forecasts which must be submitted to Brussels each year in April – the so-called stability programme update (SPU). However this was not possible this year due to the talks on government formation.
The summer statement will update the tax forecasts in the SPU on the basis of the two month’s exchequer returns published in the interim. The SPU had estimated the fiscal space for the October budget – extra spending and tax cuts – at €900 million. The statement is expected to signal an increase.
